Bonds

1. Marks Private Limited is a growing organization in the industry and is showing progress in terms of capturing new markets in the industry. It has recently introduced a 5 year bond to arrange capital for entering into a new business. The coupon rate announced by the organization is 8% compounded annually with $1000 as a face value and 10% as yield to maturity. Calculate the

a. Present Value of the bond

b. Current yield associated with the bond

c. Also comment that how the present value of the bond will be affected if the yield to maturity will become same as a coupon rate.

Stocks

2. a. Write out the equation of corporate value model, and why there is a need of corporate value model for valuing stocks, when you can easily use the dividend model? [1 mark] b. Being a stock holder of Ghani Glass limited, a very well-known company listed in the Karachi Stock Exchange 100 index, you are keen to fairly determine the value of stock. Given the following information, what is Ghani Glass Limited value per share?

The free cash flow of the company is expected to be negative -3 Million (Rs. 3,000,000) for first year, 6 Million (Rs. 6,000,000) for second year, 12 Million (Rs. 12,000,000) for third year, and 20 Million (Rs. 12,000,000) for the fourth year.

The long-term growth after year 4 is expected to be 3%, and the rate of return is 8%.

The company has Rs. 50 Million in the debt and at present there are 5 Million shares of the company.